According to a report released Friday by Standard & Poor's Ratings Services, the ratings agency believes there could very likely be a net negative for for-profit hospitals with the full implementation of the Patient Protection and Affordable Care Act.
The ratings agency believes that while there may be benefits to mandated insurance for hospitals, there are other prominent components of the legislature that could likely cause a greater downside risk to hospitals, such as employer responsibility, the payor mix shift and the value-based purchasing system.
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In addition, if the law is upheld, but the individual mandate does not pass, hospitals will still need to contend with these changes on top of retaining the financial burden of caring for uninsured patients, according to the report.
"The overarching theme of this report is that no one really knows definitively what the law's impact will be. There are too many unknowns right now. What we think now is based off of speculation, " said David Peknay, the report's primary credit analyst. "Just because the bill will reduce the uninsured population, it doesn't necessarily mean it will translate into a net gain for hospitals. Hospitals may receive more payments, which is good, but what we don't know is what the outflows will be and if they will make up for the inflows of funds. There's a good chance it will not make up for it."
The report mentions that due to many employers likely dropping their higher-cost employee health plan, individuals will then be purchasing their healthcare through an exchange, which may not pay hospitals as well as employer plans.
"This is critical being that the private insurance market, which commonly generates up to 50 percent or more of a for-profit hospital company's revenues, has been subsidizing weaker government reimbursement for years. Commercial rates continue to be quite good, increasing 5 percent to 7 percent per year. This payer mix shift could have an adverse impact on hospitals because the rates that hospitals will receive through the exchange-offered plans will likely be below the current commercial insurance company rates."
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Peknay said the demand for hospitals will also likely increase.
"With 32 million more people carrying health insurance, it is reasonable to assume that demand for hospital services will increase. Because for-profit hospitals already have been struggling to meet reimbursement challenges, they have been focusing on keeping operations as lean as possible. An increase in volume could generate hiring needs and raise other variable costs. The uncertain reimbursement level raises the question of whether reimbursement under the health reform law will be sufficient to cover the additional variable costs," according to the report.
Overall, Peknay stresses that simply "looking at just getting rid of bad debt might be too simplistic anot giving enough notice to all other aspects of the law and what the outcomes will be as far as outflow goes."
"There is no definite data that brings people to conclusions. Even the hospitals themselves suggest that they don't know what the outcome will be either. What we do know is that the healthcare system is trying to pay for as many people as possible but we also need to control the hospital spending curve," he continued. "I think it's clear that hospitals need to be aware of the importance of efficiency, which is prudent to financial management. It's widely agreed in hospitals that they will be challenged in many ways for a long time. This report is about raising that awareness."
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